Moreno Bertoldi, Philip R. Lane, Paolo Pesenti, and Valérie Rouxel-Laxton

The reason why the macroeconomic policy mix has been different on the two sides of the Atlantic in recent years remains a hotly debated issue. Was it due to a different reading of the root causes of the global financial crisis and therefore of the type of policy response considered most appropriate? Or was it instead the result of incomplete economic and financial integration in the euro area and the absence of a solid backstop for sovereign and banking sector problems, factors that led the euro area—as put by European Central Bank (ECB) President Mario Draghi—to resort to “policy choices made under the pressure of events and that were commendable by themselves, but that were sequenced in the wrong order”? Or was it a combination of the two? Looking forward, will the policy mix continue to be different? Are the United States and the euro area at risk of secular stagnation? What are the most effective fiscal consolidation plans for advanced economies with a high government debt/GDP ratio? What are the risks related to evolving liquidity conditions? And is there room for cooperation on the two sides of the Atlantic on macroprudential issues?

Adam Copeland and Ira Selig

Tri-party repo is popular among securities dealers as a way to raise short-term funding. The tri-party repo settlement process has been improved, and continues to be improved, with the implementation of a set of recent reforms. Two main goals of these reforms are to sharply reduce the amount of liquidity needed to facilitate the settlement of tri-party repo contracts, and to increase the use of more resilient sources of liquidity (for example, term financing and committed credit) to ensure that settlement can occur in good and bad times. In this post, we detail how the reforms have affected the sources of liquidity that dealers can use to facilitate settlement of tri-party repo contracts. We then explain cash investors’ role in the settlement process, and highlight how their current practice of sending principal payments late in the day disrupts the timely settlement of tri-party repo contracts.

Jason Bram




Ever since the first census of the U.S. population was taken, back in 1790, New York City has been the nation’s largest city, and for most of this time by a factor of more than two. But how has the city—in particular, the city’s boundaries—evolved over time?

Ricardo Correa, Linda S. Goldberg, and Tara Rice

The recent financial crisis underscored the importance of understanding how liquidity conditions for banks (or other financial institutions) influence the banks’ lending to domestic and foreign customers. Our recent research examines the domestic and international lending responses to liquidity risks across different types of large U.S. banks before, during, and after the global financial crisis. The analysis compares large global U.S. banks—that is, those that have offices in foreign countries and are able to move liquidity from affiliates across borders—with large domestic U.S. banks, which have to rely on financing raised in capital markets and from depositors to extend credit and issue loans. One key result of our study, detailed below, is that the internal liquidity management by global banks has, on average, mitigated the effects of aggregate liquidity shocks on domestic lending by these banks.

Amy Farber

In a May 2014 Historical Echoes post, Marja Vitti describes what happened to money too old to be left in circulation: it was incinerated by the Federal Reserve Banks until passage of the Clean Air Act of 1970, after which the money was shredded. Paper money incineration by a Federal Reserve Bank employee was the subject of a hilarious broadcast of the famous TV quiz show What’s My Line? In this broadcast, which aired on June 12,  1960, Thomas Hull, in charge of burning the money for the Federal Reserve Bank of New York, steps onto the set, writes his name on the chalkboard, and when asked by John Daly, the show’s host, where he comes from, needs to repeat “Lake Ronkonkoma, New York” three times before he is understood clearly. You might think that this is why Mr. Daly answers so many of the panelists’ questions himself rather than letting Mr. Hull answer them. But you’d be wrong—he does this for pretty much every contestant to ensure that communications are clear and the game remains fair.

Thomas Klitgaard and Preston Mui

Japan’s population is shrinking and getting older, with the population falling at a 0.2 percent rate this year and the working-age population (ages 16 to 64) falling at a much faster rate of almost 1.5 percent. In contrast, the U.S. population is rising at a 0.7 percent annual rate and the working-age population is rising at a 0.2 percent rate. So far, supporting the growing share of Japan’s population that is 65 and over has been the substantial increase in the share of working-age women entering the labor force. In contrast, U.S. labor force participation rates have been falling for both men and women. Japan’s labor market adjustments help explain the steady, albeit, modest growth in output per person despite the surge in the 65 and over cohort. Indeed, Japan has been able to match U.S. per capita growth since 2000.

Fernando M. Duarte, Juan Navarro-Staicos, and Carlo Rosa

Volatility, a measure of how much financial markets are fluctuating, has been near its record low in many asset classes. Over the last few decades, there have been only two other periods of similarly low volatility: in May 2013, and prior to the financial crisis in 2007. Is there anything we can learn from the recent period of low volatility versus what occurred slightly more than one year ago and seven years ago? Probably; the current volatility environment appears quite similar to the one in May 2013, but it’s substantially different from what happened prior to the financial crisis.

Jim Narron and Donald P. Morgan

In 1815, England emerged victorious after what had been nearly a quarter century of war with France. And during those years, encouraged by high prices and profits, England greatly expanded its agricultural and industrial capacity in terms of land and new machinery, with these activities often financed on credit. Improved harvests from 1812 to 1815 coincided with an export market boom in 1814, as the continent began to reopen for trade and speculation in South America increased. But the speculation turned to frenzy compared to the boom of 1810 as everything that could be shipped was shipped—until the speculation broke. The crisis started first with farmers and landlords, spread to business and industry, and was followed by mass starvation on the continent. In this edition of Crisis Chronicles, we recount the Crisis of 1816, the Year without a Summer, and the idea of Sunspot Equilibria.

Claudia M. Buch, James T.E. Chapman, and Linda S. Goldberg

Over the past thirty years, the typical large bank has become a global entity with subsidiaries in many countries. In parallel, financial liberalization has increased the interconnectedness of banking systems, with domestic banking systems becoming more exposed to shocks transmitted through foreign banks. This globalization of banking propagated liquidity risk during the global financial crisis and subsequent euro area crisis. Unfortunately, little is known about how cross-border operations of global banks transmit liquidity shocks between countries. The seminal work by Peek and Rosengren (1997, 2000) provides early examples of how bank-level data can help identify the specific transmission channels. There are, however, two limitations to conducting this line of research. First, there is a lack of public data on the balance sheets of global banks. Second, it is difficult to compare the results of different research projects that use sensitive supervisory data collected by banking supervisors and central banks. Together with other scholars, we established the International Banking Research Network (IBRN) to overcome these limitations.